England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
(MASTER MONCASTER)

		Royal Courts of Justice Strand London WC2A 2LL
		February 16 2005

Mr Justice Lawrence Collins:

I The background

1. The claimant, Englewood Properties Ltd ("Englewood"), is a property developer, which at the material times owned a parade of shops in Dagenham. According to his evidence, the first defendant, Mr Shailesh Patel ("Mr Patel") is a property consultant and agent. The second defendant, Cornberry Ltd, is a BVI company.
2. Numbers 233 to 253 (odd) Heathway, Dagenham, Essex, consist of a three storey parade of shops. At a public auction held by Allsop & Co at the Berkeley Hotel, Wilton Place, London SW1, on December 3, 2003 the shops (together with other properties) were put up for sale in seven lots, Lots 10 to 16.
3. Lot 11 consisted of Numbers 235 to 241, which was a large Woolworths store ("the Property"), with ancillary accommodation . The title comprised within the Property is both freehold and leasehold. At the time of the auction the freehold owner was Englewood, which also owned the freehold of Lot 10 and Lots 12 to 16. The freehold and leasehold titles have not merged.
4. The auction catalogue distributed to prospective buyers at the auction incorporated Notices to Prospective Buyers, Particulars of Sale for each lot, and the Common Auction Conditions. The Notices to Potential Buyers stated (para 5.3) that the Conditions of Sale consisted of the Notices to Prospective Buyers, the Common Auction Conditions, the Special Conditions of Sale, and any addenda relating to the Lot. The Notices provided:

"6. Liability of Bidder

6.1 If you bid at the Auction, you will be personally liable in respect of any accepted bid. This will be the case even if you bid as agent or other representative for another party.

6.2 If you bid as agent or representative then you and the person or organisation on whose behalf you have bid will be jointly and severally liable under the contract of sale …"

5. The Common Auction Conditions included a section headed "The Conduct of the Auction" which provided as follows:

"if YOU make a successful bid for a LOT

YOU are personally liable to buy it even if you are acting as an agent. …

….

If the BUYER does not comply with its obligations under the CONTRACT YOU are personally liable to buy the LOT and must indemnify the SELLER in respect of any loss the SELLER incurs as a result of the BUYER's default."

6. The auctioneer was Mr Moir of Allsop & Co. Mr Patel successfully bid for the Property at the auction, which was knocked down to him at a price of £1,320,000. Mr Hodgson of Allsop & Co then inserted Mr Patel's name in section 2 of the Buyer's Slip under the heading "Full name, address and telephone number of the Buyer (ie. the person, firm or company who is intended to be the owner of the property)" and the name of Mr Patel's solicitors in section 4. Mr Hodgson then took the Buyer's Slip to Mr MacKilligan of Allsop & Co, who inserted Mr Patel's name in section 3 under the heading "Successful Bidder's full name" etc and asked Mr Hodgson to get Mr Patel to sign it. Mr Patel then signed the Buyer's Slip, which provides that Allsop & Co will sign any memorandum or contract of the sale on behalf of the relevant parties. Mr MacKilligan made a handwritten note on the Buyer's Slip "Shailesh to complete later." Mr Patel was also the successful bidder on Lot 14.
7. On December 4, 2003 Alan Ross & Partners, sent a client account cheque for the deposit of £132,000 to Allsop & Co with a covering letter signed by one of its partners, Mr Sanjiv R Patel, addressed to Mr MacKilligan of Allsop & Co referring to "my client Cornberry Limited's purchase of [the Property] at Auction yesterday" and confirming that Allsop & Co had authority to sign the contract on their behalf, or alternatively they could send the contract to him for signature.
8. Allsop & Co then prepared a sale memorandum in respect of the sale of the Property which showed Cornberry Ltd as the buyer of the Property at the bid price and signed it on behalf of Cornberry Ltd.

II The title

9. The parade, including the Property, was part of freehold land originally owned by the London County Council ("the LCC"). On June 30, 1939, the LCC granted a 99 year lease from March 25, 1938 ("the June 1939 headlease") of the parade to Wigram Family Settled Estates Ltd ("Wigram").
10. On October 18, 1939 Wigram granted an underlease ("the October 1939 lease") of the Property to FW Woolworth & Co Ltd ("Woolworths") as lessee. The underlease was for a term of 99 years (except for the last three days) from March 25, 1938.
11. On October 15, 1991 Englewood purchased the October 1939 lease at auction, and on November 12, 1991 ("the November 1991 underlease") Englewood granted a leaseback to Woolworths of the Property for a term of 25 years from September 29, 1991 at an initial rent of £85,000 p.a. The underleasehold title was subsequently registered under Title EGL291972.
12. Subsequently, as a result of transactions in November 1991, Englewood acquired the headlease interest in the parade, and in November 1998 Englewood acquired the freehold interest in the parade from the London Borough of Barking and Dagenham. On registration of the freehold, Englewood applied for first registration of the freehold title and merger of the June 30, 1939 headlease, and registration of the purchase and the merger were completed in April 1999. Freehold title is registered under EGL385095, and the charges register shows the October 1939 lease (and the other occupational leases of the other shops in the parade) as leases of which the proprietor of the freehold title would be the immediate reversioner.

III The covenants

13. Neither the October 1939 lease nor the November 1991 underlease was in evidence, but there is no dispute as to the relevant provisions. By clause 5(c) of the October 1939 lease:

"The Lessors will not during the term hereby granted sell or let any of their shops numbers 233, 243, 246, 247, 249 and 251/253 …to any person corporation or firm (except S.W. Woolworth [sic] …) whose primary business is that of a fixed price store and in particular but without limitation to the foregoing will not sell or let any such shops or any part thereof to [certain named companies] … and the Lessors will in every conveyance or lease of any such shops or any part thereof insert an appropriate covenant to prevent the purchaser or the lessee as the case may be from selling or letting any such shops to any person corporation or firm … whose primary business is that of a fixed price store or to [named companies] …"

14. The November 1991 underlease contains a lessor's covenant relating to the enforcement of provisions in the October 1939 lease. Clause 5.4 of the November 1991 underlease contains a covenant by the landlord "to enforce at the Landlord's cost the covenants contained or referred to in the Headlease on the part of the Lessor …". The "headlease" is defined as the October 1939 lease.

IV The special conditions of sale

15. The special conditions of sale in relation to the Property stated that on completion the seller was to deliver to the buyer with the freehold and leasehold land certificates the original and counterpart of the June 1939 lease, and the draft transfer provided:

"The Transferee and its successors in title hereby covenant with the Transferor at all times hereafter to observe and perform all the covenants conditions and stipulations on the part of the Landlord and Tenant contained or referred to in the Lease dated 30^th June 1939 made between the London City Council [sic] (1) and Wigram Family Settled Estates Limited (2) and to indemnify the Transferor and its successors in title from and against all proceedings costs claims demands and expenses arising out of any future breach or non-observance or non-performance thereof."

16. It is likely (but there is no evidence on the point) that there was a similar special condition in relation to the other Lots, and it is possible that the reference to the June 1939 headlease between the LCC and Wigram Family Settled Estates Ltd was an error, and that it was intended to refer to the October 1939 lease between Wigram Family Settled Estates Ltd and Woolworths.

V The problem arises

17. After the auction Stephenson Harwood, the solicitors for The Bank of Scotland, who were to provide finance for the purchase, raised questions on the covenant in the October 1939 lease. On December 16, 2003 the defendants' then solicitors, Alan Ross & Partners, asked Englewood's solicitors, Russell-Cooke, to confirm that in respect of each Lot a covenant not to let the properties for uses or to users which would breach that covenant was to be imposed on the buyers as required by the covenant in the October 1939 lease. Russell-Cooke immediately replied that the auction Special Conditions on the other Lots did not refer to the covenant. In the pleadings Englewood admits that in none of the agreements relating to the other properties was the relevant covenant or condition inserted.
18. Stephenson Harwood then suggested to Alan Ross & Partners that the defendants should seek indemnity insurance. First Title (who are legal indemnity providers) were approached but subsequently stated that they regarded the covenant as enforceable and would not cover the risk.
19. The Bank of Scotland declined to finance the purchase in the light of the report on title prepared by Stephenson Harwood. The Bank's view was that while Woolworths remained as tenants there would remain an unquantifiable risk to the purchaser of a claim for damages from Woolworths should a fix priced store or one of the other stores mentioned commence trading in the relevant numbered properties.
20. Chestertons subsequently advised that the market value of the freehold interest in the Property with the title defect was £800,000. Chestertons' report stated that the existence of a large number of fixed price and discount stores in the vicinity meant that the market was already diluted and an additional discount store would have a reasonably small effect on Woolworths. But the existence of the restrictive covenant would reduce the number of investors willing to consider the Property, and the market might be restricted to cash buyers, who would normally seek a 20%-30% discount from market value, where the purchase could not be financed from borrowings.
21. On January 5, 2004 the defendants' solicitors wrote to Englewood's solicitors asserting that Englewood had acted in breach of its duties as trustee, and was not entitled to enforce the contract of sale. The defendants refused to complete on the stipulated completion date, January 6, 2004.
22. On January 12, 2004 Englewood's solicitors served a formal notice to complete, which was extended by 48 hours until January 28, 2004 by a letter of January 26, 2004, and then again to February 2, 2004 by letter of January 28, 2004. On February 2, 2004 the defendants' solicitors wrote to Englewood's solicitors enclosing the valuation from Chestertons and asserting that their client was ready, able and willing to complete at the abated price of £800,000.

VI The present proceedings

23. On March 8, 2004 Englewood brought proceedings against the defendants for specific performance. On March 10, 2004 Master Moncaster gave permission for the claim form to be served outside the jurisdiction on Cornberry Ltd. Mr Patel and Cornberry Ltd served, separately, a defence and counterclaim in April and May 2004 respectively. Mr Patel claimed that he acted only as agent: further or alternatively Englewood was estopped from asserting that Mr Patel was a buyer or joint buyer because after the auction Englewood and the defendants proceeded on the basis of the assumption that Cornberry Ltd was the sole buyer of the Property and it would be unfair or unjust to allow Englewood to go back on this assumption. Mr Patel relies on the fact that all of Englewood's dealings with the Property after Mr Patel's solicitor identified Cornberry Ltd as the buyer were on the basis that Cornberry Ltd was the sole buyer.
24. Mr Patel says further that, if he was under any personal liability, he was entitled to an abatement of the bid price by reason of damages payable by Englewood for its breach of duty as trustee in respect of the Property. Cornberry Ltd's defence was that it was entitled to an abatement of the bid price for the same reason.
25. The breach of duty as trustee was said in the defences of Mr Patel and Cornberry Ltd (respectively paragraphs 18 and 17) to be the failure to insert any covenant or condition in the agreements of sale relating to Lots 12 to 16 that would protect (or seek to protect) the buyer of the Property (who on completion would become Woolworths' landlord) from action by Woolworths if the primary business of one of the resold properties was contrary to clause 5(c) of the October 1939 lease. Englewood's reply to each of the defences was that there was no such duty, and that in any event (inter alia) the covenant in clause 5(c) ought to be deemed obsolete, and that it did not secure any practical benefits to Woolworths.
26. On June 9, 2004 Englewood applied for summary judgment. By order of August 20, 2004 Master Moncaster ordered that judgment be entered against the defendants for specific performance. His reasoning was as follows:

(1) on the sale of Lots 10, and 12 to 16, Englewood, in breach of clause 5(c) of the October 1939 lease and therefore in breach of its covenant with Woolworths in the November 1991 underlease, did not insert an appropriate covenant against competition with Woolworths as required by the October 1939 lease, and by that failure and breach of covenant Englewood had made themselves liable to Woolworths for damages, should Woolworths choose to sue them;

(2) although Englewood was liable to Woolworths, he was very doubtful whether the defendants after completion of their contract could be under any liability to Woolworths for that one-off breach by their predecessor landlord, and they were not liable for any future breaches by reason of the limitation in the covenant of liability to the period of ownership of the burdened premises;

(3) but because that point was not fully explored, he proceeded on the basis that there was a possible liability on the defendants if they completed the contract;

(4) if the effect of the sales of the other shops in the parade without the imposition of the covenant was to expose the buyer to potential liability for future breaches of contract, then to do that on a separate sale after the date of the contract would be a breach of the seller's duty to manage and preserve the property up to the date of completion; and that duty was not limited to preserving the physical state of the Property but extended to matters which affected the value of the Property, e.g. the withdrawal of a planning permission which reduced the value, or the re-letting of the property; such cases could not be distinguished from a case where the seller between contract and completion committed a breach of the lease, subject to and with the benefit of which the property was sold, if that breach diminished the value of the reversion sold. Where the subject matter of the sale was a reversion on a lease, a deliberate breach of the covenants in the lease must be a breach of the seller's duty, whether the breach related to the demised premises or to adjoining premises;

(5) if there had been a separate sale subsequently of the other properties in the parade there would have been a breach of duty and an abatement of the purchase price would be necessary, but it was wholly artificial and unreal to apply that analysis to the facts of the present case, since the whole parade of shops was included in the auction in seven Lots, and the transaction could not be sensibly analysed as being a series of separate sales in temporal order because a minute or two separated the sale of each of the Lots. The reality was that all the shops were being put up simultaneously for sale, and it was fortuitous that the Property was the second Lot rather than the first Lot or (say) the seventh Lot. There was therefore no breach of the duty of Englewood as a trustee for its purchaser;

(6) the terms of the Common Auction Conditions and Notices to Prospective Buyers made it impossible for Mr Patel to escape from personal liability under the contract. It did not matter that all of the auctioneers at Allsop & Co knew that he was an agent and did not purchase properties on his own account.

27. Master Moncaster gave permission to appeal (although he said that he did not consider that the agency point permitted of any doubt). Englewood has put in a respondent's notice challenging the Master's view that if there had been a separate sale subsequently of the other properties in the parade there would have been a breach of duty and an abatement of the purchase price would have been necessary. The Master should have held that the seller's duty as trustee for the buyer during the period between contract and completion only extended to dealings with the properties sold and did not cover dealings with the seller's adjoining or neighbouring properties.
28. On this appeal, the defendants seek to uphold the Master's view that if there had been a separate sale, Englewood would have been in breach of duty, and say that there was no principled reason why the sales of Lots 12 to 16 were not separate sales. Englewood chose to divide the parade into different parcels or lots, rather than to sell them as one parcel. Even if individual property transactions are to be regarded as "artificial" or as carried out to circumvent a statute, provided that those transactions are not shams, they will be regarded as effective: see Snook v London and West Riding Investments [1967] 2 QB 786, 802; Belvedere Court Management v Frogmore Developments Ltd [1997] QB 858. The court should treat the transactions as separate and not aggregate them. Once it is recognised (as it must be) that different lots were the subject of separate contracts then effect must given to the consequences of this. The reasoning of the Master creates uncertainty which, in a property context, the courts should strive to avoid.
29. Englewood emphasises that the terms of the agreements for the sale of the re-sold properties had already been determined before the auction and were fully documented in the auction literature, which was available for inspection by Mr Patel before he bid for the Property. Englewood had already contracted to sell Lot 10 on terms which omitted any protective covenant or condition prior to the Property being knocked down to Mr Patel. Mr Patel successfully bid for the Property on terms (as set out in the auction literature) which contained no provision for the insertion of any protective covenant or condition in any of the sale agreements relating to the re-sold properties. The Master was correct to reject an analysis of the transaction as being a series of separate sales in temporal order.
30. In any event the duties of the seller as trustee only extended to dealings with the Property and did not cover any dealings with the seller's adjoining or neighbouring properties. The vendor is a trustee of the property sold and any physical accretions thereto only, and is not a trustee of financial benefits not expressly included in the sale: Re Hamilton-Snowball's Conveyance [1958] Ch 308. The vendor is not under a duty to abstain from dealing with other properties of his in the interval between contract and completion if such dealing would not constitute a breach of any obligation owed to the purchaser if effected after completion. The Master was right to be troubled by an anomaly he identified in his judgment, namely how or why the seller should be under a liability to his buyer during the period between contract and completion for such an alleged breach of duty when, after completion, he would be free to sell the adjoining properties without the buyer having any redress.
31. The defendants argue that Englewood had covenanted with Woolworths to take action if the owner of the adjoining shops sold or let any of them to a proscribed company, or that owner sold or let such a shop without inserting a covenant preventing a sale or letting to a proscribed company. If the landlord of one of those shops sold or let one of them without inserting a covenant preventing sale or letting to a proscribed company Englewood (and any successor in title) would be liable in damages to Woolworths. When Cornberry Ltd becomes Woolworths' landlord on completion of the contract, then Cornberry Ltd will become subject to clause 5.4 of the November 1991 underlease, but will not be in a position to "enforce" clause 5(c) of the October 1939 lease. Englewood was obliged as trustee to protect Cornberry Ltd's interest in the Property by complying with clause 5(c) of the October 1939 lease. In view of clause 5(c), clause 5.4 of the November 1991 underlease affected the dealing of the landlord in respect of the Property with its interest in other properties, namely the other Lots.
32. The principal issue is, therefore, whether as a matter of law the duty of a vendor could extend to a duty to impose covenants on purchasers of adjoining properties even though that duty is not imposed by the contract of sale of the property in question. Both Mr Mark Warwick and Mr David Hodge QC accepted that it was appropriate for the matter to be finally determined on the application for summary judgment, and that there were no matters of fact which might require investigation. I was taken to several authorities, and I looked at some additional authorities on which I gave the parties the opportunity to comment. I then circulated a draft judgment dismissing the appeal, in which, in addition, I quoted from a Law Commission Report (below, para 43), which in turn referred to a decision (Dowson v Solomon (1859) 1 Drew & Sm 1) which had not been cited to me. Mr Mark Warwick then indicated, in a skeleton argument for a stay of execution pending appeal, that he would be relying on this decision on any appeal. Since this decision had not been the subject of argument, I decided that I would hear oral submissions on the relevance of this decision before handing down my judgment, and this judgment is given following those submissions.
33. On the personal liability aspect, Mr Patel's case is that he acted only as agent, or alternatively Englewood is estopped by convention from asserting that he was the buyer or a joint buyer. His evidence is that he carries on business as a property consultant and agent and that he attended the auction in that capacity. The auctioneer (Mr Moir) was aware of his business and also was aware that when he made bids for Lot 11 he was doing so as agent. Allsop & Co would have known that Mr Patel (as was his custom) would notify Allsop & Co soon after the auction of the name of his principal. As from the receipt of the letter the identity of the principal was known and thereafter all Englewood's dealings with respect to the Property were on the basis that Cornberry Ltd was the sole buyer. A contract of sale of a property at public auction is not written: Law of Property (Miscellaneous Provisions) Act 1989, section 2(5)(b). The contract is effected by the fall of the auctioneer's hammer. The fact that the auctioneers at Allsop & Co knew that Mr Patel was an agent and never understood at any time that he was acting on his own account is equivalent to an agreement that he was not personally liable, or there was an estoppel by convention because it would be unfair to hold Mr Patel liable pursuant to the contract.
34. Englewood's case is that if Mr Patel was acting as the agent of Cornberry Ltd, an unknown principal, when he successfully bid for the property, by virtue of terms of the Notices to Prospective Buyers and the Conduct of the Auction section of the Common Auction Conditions, Mr Patel is jointly and severally liable with Cornberry Ltd under the auction contract and personally liable to buy the Property at the bid price, and to indemnify Englewood in respect of any loss. Englewood says that there was no attempt to vary or exclude the provisions in the auction conditions imposing personal liability on Mr Patel, and so far as estoppel by convention was concerned there was no evidence of any common underlying assumption that only Cornberry Ltd was the buyer.

VII Conclusions

35. This is an appeal on an application for summary judgment, and I have to consider whether there is a realistic, as opposed to a fanciful, prospect of Mr Patel succeeding on the agency point, and of both defendants succeeding on the trust point.

The agency issue

36. I did not call upon Mr David Hodge QC to respond on behalf of Englewood to the appeal on the question of the personal liability of Mr Patel. The Notices to Prospective Buyers and the Common Auction Conditions, on the basis of which Mr Patel bid, are absolutely clear in emphasising his personal liability.
37. Of the allegation that Englewood was estopped by convention from asserting that Mr Patel was either the buyer of the Property or a joint buyer, Mr Patel was asked to give particulars of all specific facts and matters relied upon in support of the alleged (a) estoppel and (b) convention. His answer was that after the auction he and Englewood (and Cornberry Ltd) proceeded on the basis of the assumption that Cornberry Ltd was the sole buyer of the Property and it would be unfair or unjust to allow Englewood to go back on this assumption. The facts and matters set out in paragraphs 6.5 and 6.6 of the defence were relied upon. Paragraphs 6.5 and 6.6 were:

"6.5 The day after the Auction (on 4^th December 2003) Alan Ross & Partners ('Alan Ross') wrote to Neil MacKilligan. The letter began 'Dear Neil' and identified the Second Defendant as the Buyer of the Property and enclosed a solicitor's cheque in respect of the deposit. No one at Allsops had asked the First Defendant for any deposit because they were aware he was only acting as agent and the deposit would be provided by his principal.

6.6 As and from the receipt of the said letter from Alan Ross the identity of the First Defendant's principal was known (namely the Second Defendant) and thereafter all the Claimant's dealings with respect to the Property (prior to this case being begun) were on the basis that the Second Defendant was the sole Buyer."

38. There is nothing in this which is any way inconsistent with the auction conditions. The whole point of them is to make an agent liable even if the auctioneer knows that he is an agent and even if the principal's identity becomes known. There is nothing inconsistent with those documents in Allsop & Co knowing that he was acting as agent, or in Englewood's advisers or Allsop & Co dealing with respect to the Property on the basis that Cornberry Ltd was the buyer. There is no suggestion, still less any evidence, that there was conduct on the part of Englewood's advisers or on the part of Allsop & Co, which amounted, or could reasonably be thought to amount, to a waiver or variation of the terms.

The breach of duty issue

39. On the main issue, I will proceed on the basis that the sales of the different Lots were separate sales, as indeed they were. Although very little time separated the sale of the separate Lots, they were genuine separate sales. Consequently in my judgment the issue is whether it is arguable that Englewood was in breach of duty in not imposing the covenant on the purchasers of the other Lots. On this point the difference between the parties was on the scope of the duty of a vendor to a purchaser between contract and completion. For Englewood, Mr David Hodge QC argued that it did not extend to properties other than that which was the subject of the sale. All the authorities were concerned with duties in respect of that property. For the defendants, Mr Warwick argued that there is no limitation of the duty of a trustee to the Property sold. The question depended on the facts, and there was no reason to suppose, for example, that a vendor could do anything he wished with his adjoining land even if it diminished the value of, or damaged, the property which he had agreed to sell.

The vendor as trustee

40. It has long been said that after contract, and until completion, the vendor becomes in equity a trustee for the purchaser. Some of the more characteristic statements in the period in which the principle was settled include these:

(a) In Lysaght v Edwards (1876) 2 Ch 499 Sir George Jessel MR said (at 506):

"It appears to me that the effect of a contract for sale has been settled for more than two centuries; certainly it was completely settled before the time of Lord Hardwicke, who speaks of the settled doctrine of the Court as to it. What is that doctrine? It is that the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold, and the beneficial ownership passes to the purchaser, the vendor having a right to the purchase-money, a charge or lien on the estate for the security of that purchase-money, and a right to retain possession of the estate until the purchase-money is paid, in the absence of express contract as to the time of delivering possession."

and (at 510):

"It must, therefore, be considered to be established that the vendor is a constructive trustee for the purchaser of the estate from the moment the contract is entered into."

(b) In Egmont v Smith (1877) 6 Ch D 469 Sir George Jessel MR said (at 475-6):

"He is certainly a trustee for the purchaser, a trustee, no doubt, with peculiar duties and liabilities, for it is a fallacy to suppose that every trustee has the same duties and liabilities; but he is a trustee. For that I have the decision of the House of Lords in Shaw v Foster, which only re-stated what had been the well-known law of the Court of Chancery for centuries."

(c) In Shaw v Foster (1872) LR 5 HL 321, 338 (in which Sir George Jessel appeared as Solicitor-General), Lord Cairns had said:

"… there cannot be any doubt of the relation subsisting in the eye of a Court of Equity between the vendor and the purchaser. The vendor was a trustee of the property for the purchaser; the purchaser was the real beneficial owner in the eye of a Court of Equity of the property, subject only to this observation, that the vendor, whom I have called the trustee, was not a mere dormant trustee, he was a trustee having a personal and substantial interest in the property, a right to protect that interest, and an active right to assert that interest if anything should be done in derogation of it."

(d) In Clarke v Ramuz [1891] 2 QB 456 (CA) Lord Coleridge CJ said (at 459-460):

"… in the case of a contract for the sale and purchase of land, although the legal property does not pass until the execution of the conveyance, during the interval prior to completion the vendor in possession is a trustee for the purchaser, and as such has duties to perform towards him, not exactly the same as in the case of other trustees, but certain duties, one of which is to use reasonable care to preserve the property in a reasonable state of preservation, and, so far as may be, as it was when the contract was made."

41. The principle has been re-stated in more modern times on several occasions, of which the following are perhaps the most helpful:

(a) In Berkely v Poulett [1977] 1 EGLR 86, 93 (C.A.) Stamp LJ said:

"These duties and rights [of a purchaser] arise from the contract of sale and it is because of their existence that the vendor is said to be a constructive trustee, or a trustee sub modo, of the estate for the purchaser from the time when the contract is constituted. But to say that it is the duty of the vendor as trustee for the purchaser to care for the property is to put the cart before the horse and may lead you into error. He is said to be a trustee because of the duties which he has, and the duties do not arise because he is a trustee but because he has agreed to sell the land to the purchaser and the purchaser on tendering the price is entitled to have the contract specifically performed according to its terms. Nor does the relationship in the meantime have all the incidents of the relationship of trustee and cestui que trust. That this is so is sufficiently illustrated by the fact that prima facie the vendor is until the date fixed for the completion entitled to receive and retain the rents and profits and that as from that date the purchaser is bound to pay interest. And you may search the Trustee Act 1925 without obtaining much that is relevant to the relationship of vendor and purchaser. Thus, although the vendor because of his duties to the purchaser is called a trustee, it is wrong to argue that because he is so called he has all the duties of or holds the land on a trust which has all the incidents associated with the relationship of a trustee and his cestui que trust."

(b) In Heronsgate Enterprises Ltd v Harman (Chesham) Ltd, January 21, 1993, transcript (C.A.) Sir Donald Nicholls VC said (at 13-14):

"It is well-established law that, subject always to the terms of the particular contract, a seller of property under a specifically enforceable contract is to be regarded after the contract has been made as holding the property as a trustee for the buyer. However, he is not a bare trustee. His trust obligations are limited in certain respects. For example, if, as is usually the case, he is entitled to remain in possession for the period after the contract has been made pending the date fixed for completion, he is entitled to keep and retain for his own benefit the rents and profits of the land arising during that period … The seller must take care not to damage the property or to prejudice the buyer's interest in the property of which, on completion, he will become the legal owner. But in general, within those limits he is entitled to the ordinary rents and profits, and for him to take steps to obtain them after contract and before the date fixed for completion, either by occupying and using the property himself or by permitting another to occupy and work the property in return for a rent, is not a breach of his duties as seller under a contract for sale."

42. Thus the position of the vendor as trustee has been variously described as:

(1) "something between what has been called a naked or bare trustee, or a mere trustee (that is, a person without beneficial interest), and a mortgagee who is not, in equity (any more than a vendor), the owner of the estate, but is, in certain events, entitled to what the unpaid vendor is, viz, possession of the estate": Lysaght v Edwards (1876) 2 Ch D 499, at 506, per Sir George Jessel;

(2) "a constructive trustee": Lysaght v Edwards (1876) 2 Ch D 499, at 510, per Sir George Jessel; or "constructively a trustee": Shaw v Foster (1872) LR 5 HL 321, 349, per Lord O'Hagan;

(3) "a trustee, no doubt, with peculiar duties and liabilities": Egmont v Smith (1877) 6 Ch D 469, at 475, per Sir George Jessel;

(4) "a trustee in a qualified sense only, and is so only because he has made a contract which a Court of Equity will give effect to by transferring the property sold to the purchaser, and so far as he is a trustee he is so only in respect of the property contracted to be sold": Rayner v Preston (1881) 18 Ch D 1, 6, per Cotton LJ;

(5) having duties "not exactly the same as in the case of other trustees": Clarke v Ramuz [1891] 2 QB 456, 459, per Lord Coleridge CJ; and

(6) "a quasi-trustee": Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264, at 269, per Lord Greene MR.

43. In the High Court of Australia Deane J said: "… it is both inaccurate and misleading to speak of the unpaid vendor under an uncompleted contract as a trustee for the purchaser … [T]he ordinary unpaid vendor of land is not a trustee of the land for the purchaser. Nor is it accurate to refer to such a vendor as a 'trustee sub modo' unless the disarming mystique of the added Latin is treated as a warrant for essential misdescription": Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164, 191. But in its Report on Transfer of Land: Risk of Damage After Contract for Sale (Law Com No 191, 1990), at paras 2.7 and 2.8, the Law Commission said:

"2.7 The trust concept has been particularly valuable in imposing duties on the vendor in the interim period between the date the contract is made and the date it is completed. He is liable for physical damage resulting from his not exercising reasonable care [citing Lucie-Smith v Gorman [1981] CLY 2866], including such damage inflicted by trespassers [citing Davron Estates Ltd v Turnshire Ltd (1982) 133 NLJ 937]. His responsibility also extends beyond physical damage. For example, he must continue to perform lease covenants [citing Dowson v Solomon (1859) 1 Drew & Sm 1] and must not relet in a way which would prejudice the purchaser [citing Abdulla v Shah [1959] AC 124 (PC)].

2.8 While the application of the term 'trustee' to describe the vendor's position may sometimes be a cause of confusion, because some rules applicable to trustees have no application here, there is clearly a need for some restraint on the vendor's exercising the power of a legal owner and for the imposition for the benefit of the purchaser of some positive duty of care. The trust concept which has developed is a useful, flexible tool enabling a degree of control over the vendor to be exercised in the very varied situations which arise. The possible option of abolishing this trust was put forward in the working paper [Law Commission, Transfer of Land: Passing of Risk from Vendor to Purchaser, Working Paper No. 109 (1988)] although we did not favour it. None of those who responded supported the suggestion we therefore conclude that the trust should remain undisturbed."

The consequences

44. Although there is some overlap, the cases can be divided into two broad categories. The first is where the existence of the trust, or the identification of the trust property, is in question.
45. Thus in Lysaght v Edwards (1876) 2 Ch 499 the testator agreed to sell a farm, and died before completion. It was held that the farm passed under a devise of "all the real estate which at my death might be vested in me as trustee."
46. In the well-known decision in Rayner v Preston (1881) 18 Ch D 1 the vendors agreed to sell a house which they had insured against fire risk. The house was damaged by fire after contract but before completion, and the issue was whether the purchaser was entitled to the benefit of the insurance. It was held by a majority that the purchaser was not entitled to the insurance proceeds. On the trust aspect, Cotton LJ held that the vendors were trustees in a qualified sense only, and only in respect of the property contracted to be sold, of which the policy was not a part. Brett LJ considered that it was a misnomer to describe the vendors as trustees of the house, but even if they were trustees the contract of insurance did not run with the land. James LJ, dissenting, considered that the vendors were trustees and held the insurance money for the purchaser because any benefit which accrued to a trustee by reason of his legal ownership was taken as trustee for the beneficial owner. Section 47 of the Law of Property Act 1925 was intended to reverse the effect of this decision, but did not achieve its object: see Megarry and Wade, Law of Real Property, 6^th ed Harpum, 2000, para 12-057.
47. But it remains clear that the nature of the trust is not of the kind which (in the absence of agreement to the contrary) requires the trustee to account for benefits received from the trust property. In Re Hamilton-Snowball's Conveyance [1959] 1 Ch. 308 the vendor had received, between contract and completion, compensation for the requisition of the premises. Upjohn J held that the vendor under a contract for sale is only a qualified trustee for the purchaser of the premises with vacant possession, together with any physical accretions thereto, and not of any right to compensation moneys payable to him under an Act of Parliament which did not, in the absence of express provision in the contract, form part of the subject matter of the sale. So also a vendor of a house was entitled to retain the benefits of payments from a tenant made between contract and completion, because the vendor had sold the house and not also the benefit of the lease: Re Lyne-Stephens and Scott-Miller's Contract [1920] 1 Ch 472 (C.A.). Cf Musselwhite v CH Musselwhite & Son Ltd [1962] Ch 964, 987 (sale of shares).
48. The second category of cases, which is relevant to the question on this appeal, relates to the scope of the duty of the vendor as trustee. The following duties have been held to exist:

(1) to keep the property in a proper state of cultivation, reasonable regard being had to incurring a liability on his part: Egmont v Smith (1877) 6 Ch D 469;

(2) to use reasonable care to keep the property in a reasonable state of preservation, and, so far as may be, as it was when the contract was made: Clarke v Ramuz [1891] 2 QB 456, 459-460; Raffety v Schofield [1897] 1 Ch 937, at 944;

(3) to take care to prevent removal of the soil by a trespasser: Clarke v Ramuz [1891] 2 QB 456 (CA), where Kay LJ also put the decision on the ground that the purchaser had not got the whole of what he had contracted to buy;

(4) to keep the property in its then condition and state, and at any rate, to take reasonable care of it and see that its condition did not deteriorate during that time: Davron Estates Ltd v Turnshire Ltd. (1982) 133 NLJ 937 (failure to prevent damage by squatters);

(5) not to abandon rubbish on the property: Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264;

(6) in a case where there was a contract for the sale of premises together with the goodwill of the business carried on from the premises, not to let the business lapse, and to inform the purchaser with reasonable promptitude of what he was doing: Golden Bread Co. v Hemmings [1922] 1 Ch 162.

49. The Law Commission Report mentioned above (para 43) states (para 2.7) that the vendor must continue to perform lease covenants, citing Dowson v Solomon (1859) 1 Drew & Sm 1, and it was this reference which led to the further argument on this decision. The defendant had agreed at auction to buy a leasehold house from the trustees for sale under a will. The lease contained a covenant on the lessee to keep the premises insured against fire, with a clause for forfeiture in the event of non-performance of any of the covenants. The auction was in June 1858, and completion was fixed for July 20, 1858, but was delayed until August 26, 1858. The trustee who was acting for all the trustees, anticipating completion in July, renewed the insurance policy for one month only, and the policy expired on July 24, 1858. On the completion date the purchaser refused to complete on the ground that the lease was forfeited by reason of the breach of covenant (page 4). The vendors refused to obtain a waiver of the forfeiture from the lessors (Dulwich College) as a condition of completion. The purchaser then gave notice that the contract of purchase was at an end, and demanded the return of his deposit.
50. The defendants' case was that the failure to insure resulted in the title becoming defective (page 8). The question was posed (page 10) "how long did it continue to be the duty of the vendors … to keep up the insurance, and to perform the other covenants in the lease so as to prevent a forfeiture?" There was, it seems, an express covenant to clear all outgoings (including the insurance) until the date fixed for completion, which carried with it the implication that the vendors were not responsible thereafter (page 11). The question was whether the failure to inform the purchaser that the insurance lapsed, and the dropping of the insurance, entitled the purchaser to rescind the contract, and that "question must be tried upon the same grounds as if upon the dropping of the insurance the lessors had actually entered for the forfeiture and avoided the lease" (page 12). In the "special and peculiar circumstances" (page 14) specific performance was not decreed: the conduct of the trustee operated as a trap and caused great risk to the purchaser, and a court of equity would not lend the vendors its assistance.
51. I am satisfied that the ratio of this decision is that in the case of a sale of leasehold interests the vendor is under a duty to give good title, and therefore (subject to the express terms of the contract) to take care not to take steps which may result in forfeiture, and that the statement by the Law Commission is a compressed version of this principle. This same judge also decided precisely that in Palmer v Goren (1856) 25 LJ Ch 841, another case on failure to insure, where he said (at 842): "It is, in fact, the duty of the vendor so to act that nothing done by him prior to the completion of the contract shall constitute a forfeiture of the lease. The policy of insurance not having in this case been kept up till the completion of the contract, - so rendering the property liable to a forfeiture, that was not done by the vendors that which they should have done, and therefore, I think, the purchaser ought to be discharged from his contract."
52. A vendor who has given, at the request of the purchaser, notices to tenants to determine their tenancies is under a duty to consult the purchaser before reletting: Egmont v Smith (1877) 6 Ch D 469. Abdulla v Shah [1959] AC 124 (PC) was an appeal from the Court of Appeal for Eastern Africa. The Indian Transfer of Property Act 1882 applied in Kenya. It provided that a contract of sale did not create any interest, but also provided that the seller was bound to take as much care of the property as an owner of ordinary prudence would take. It was accepted that this standard was the same as that of a trustee under the Indian Trusts Act 1882, which in turn (said Lord Somervell of Harrow) was substantially that of a trustee under English law. A vendor of rent-restricted property which had become vacant between the dates of the contract and of completion was under a duty to consult the purchaser before reletting (at controlled rents) prior to completion of the contract The vendors had no right without consultation with the purchasers to diminish the value of the property as it was after the surrender by reletting.
53. Mr David Hodge QC for Englewood relied on statements in the authorities to support his argument that the duty of the vendor related only to the land to be sold. In particular he relied on the passage in the judgment of Cotton LJ in Rayner v Preston (1881) 18 Ch D 1, at 6, that the trustee is "so only in respect of the property contracted to be sold," and on other references in cases such as Lysaght v Edwards and Re Lyne-Stephens and Scott-Miller's Contract to trusteeship of the property sold. So also in Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264, 269 the breach of duty (abandoning rubbish on the property sold) was said to be "something in relation to the land which was detrimental to the land."
54. But I consider that the answer is to be found in wider considerations of the purpose of the imposition of the trust and its rationale. In my judgment all of the cases, with one possible exception, can be regarded as falling into the category of imposing a duty to preserve the property in its state as at the time of the contract. The reason is that equity imposes duties on the vendor to protect, pending completion, the interest which the purchaser has acquired under the contract. The preservation may be in a physical sense, so that a vendor may have to keep property in a proper state of cultivation (Egmont v Smith (1877) 6 Ch D 469); or prevent trespassers from removing soil (Clarke v Ramuz [1891] 2 QB 456 (CA)); or prevent trespassers from damaging the floors (Davron Estates Ltd v Turnshire Ltd. (1982) 133 NLJ 937). The vendor of a leasehold interest may not take steps which will lead to forfeiture: Dowson v Solomon (1859) 1 Drew & Sm 1; Palmer v Goren (1856) 25 LJ Ch 841. The vendor of a business may not cease to carry it on without consulting the purchaser (Golden Bread Co. v Hemmings [1922] 1 Ch 162), since to do so would destroy the subject-matter of the sale. So also the vendor should not re-let the premises without consulting the purchaser (Egmont v Smith (1877) 6 Ch D 469; Abdulla v Shah [1959] AC 124), since to do so would present the purchaser on completion with property in a legal state different from that which he contracted to buy.
55. By contrast, in Heronsgate Enterprises Ltd v Harman (Chesham) Ltd, transcript, January 21, 1993 (C.A.) the release of a tipper from an indemnity agreement was not a matter of which a purchaser could complain, since the benefit of the agreement was not part of the property being sold: it was not annexed to the land, and was a benefit vested in the vendor under an agreement which, on completion, would not survive to bind or to benefit the purchaser as the new owner. If the purchaser could not compel the vendor to assign that benefit, then the purchaser could not complain if the vendor chose not to do so.
56. The only decision which goes considerably wider, and is not in my judgment consistent with the rationale of the trusteeship rule is Sinclair-Hill v Southcott (1973) 26 P&CR 490. In that case there was an unconditional sale of a property to a developer for which the vendor was seeking planning permission. The vendor withdrew his application for planning permission after the contract. It was held that the principle of the vendor's trusteeship extended to prohibit withdrawal of a planning application in such circumstances. Graham J said (at 495-6):

"It was not suggested that a term to keep the planning application in being should be implied. Nor could it be said that a planning application could properly be regarded as part of property passing on sale in the same way and for the same reasons as the roses in the front garden. If it were the principle of trusteeship on the part of the vendor could be applied without any hesitation. … Under modern conditions, where all potential building land is subject to planning consents of various kinds, and where local authorities are likely to have large numbers of such applications before them, it is obvious that a high rather than a low place in the queue was of value to a speculative bidder … It follows that the vendor in such circumstances is in my judgment under an obligation after the contract has been signed, not to withdraw a planning application which must be assumed to be of value to the purchaser, at any rate without obtaining the purchaser's consent to such withdrawal."

57. This decision goes to the very limits of the principle, and it is supportable, if at all, only on the basis that the vendor had a duty to preserve the property in its existing state, and the existence of the planning application was part of that existing state. It is to be contrasted with the case where the vendor pre-empts the purchaser by applying for planning permission after contract and before completion, with the result that the permission was given subject to conditions to which the purchaser could reasonably have taken exception: Heronsgate Enterprises Ltd v Harman (Chesham) Ltd, January 21, 1993 (C.A.). The imposition of conditions affects the legal state of the property.
58. My conclusion is that it is not arguable that, in the absence of an agreement to the contrary, Englewood had a duty to require the purchasers of the Lots sold subsequently to the Property to comply with the covenant in clause 5(c) of the October 1939 lease. The rationale of the case law is that equity imposes duties on the vendor to protect, pending completion, the interest which the purchaser has acquired under the contract. This is a case of a lessor's covenant, and is not a case where the actions of the vendor could have led to a forfeiture of the interest which was the subject matter of the sale. For present purposes, if the most relevant obligations which equity imposes on the vendor are to take reasonable care to preserve the property in question, not to damage the property nor to prejudice the purchaser's interest in the property pending completion, the obligations do not extend to a lessor's duty to impose covenants on purchasers of adjoining properties unless that duty is imposed by the contract of sale of the property in question.
59. The appeal will therefore be dismissed.